<PAGE>
 
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  -----------
                                   FORM 10-Q
                                  -----------

      Quarterly report pursuant to section 13 or 15(d) of the Securities
                             Exchange Act of 1934

                    For the Quarter Ended December 31, 1996

                        Commission file number 0-19674


                           SYQUEST TECHNOLOGY, INC.
                                 (Registrant)

           DELAWARE                                              94-2793941
-------------------------------                         ------------------------
(State or other jurisdiction of                         ( I.R.S. Employer
incorporation or organization)                            Identification Number)


                             47071 Bayside Parkway
                           Fremont, California 94538
                           Telephone: (510) 226-4000
                           -------------------------
                       (Registrant's principal executive
                         offices and telephone Number)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports),  and (2) has been subject to such filing
requirement for the past 90 days.


                    Yes     X        No________
                         -------   


As of December 31, 1996, 16,330,489 shares of the Registrant's common stock,
      -----------------------------                                         
$0.001 par value, were issued and outstanding.

================================================================================
<PAGE>
 
                                     INDEX


                           SYQUEST TECHNOLOGY, INC.

PART I    FINANCIAL INFORMATION                                       Page no.

ITEM 1.   Consolidated Condensed Financial Statements (unaudited)
 
          Consolidated condensed statements of operations--Three months
          ended December 31, 1996 and December 31, 1995.....................3
 
          Consolidated condensed balance sheets--December 31, 1996
          and September 30, 1996............................................4
 
          Consolidated condensed statements of cash flows--Three
          months ended December 31, 1996 and December 31, 1995..............5

          Notes to consolidated condensed financial statements--
          December 31, 1996...............................................6-7



ITEM 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations............................8-14



PART II   OTHER INFORMATION

ITEM 1.   Legal proceedings................................................15

ITEM 2.   Changes in Securities............................................17

ITEM 6.   Exhibits and Reports on Form 8-K.................................19


SIGNATURES.................................................................20

                                      -2-
<PAGE>
 
                           SYQUEST TECHNOLOGY, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
                                  (Unaudited)

                                              Three months ended December 31,  
                                                1996                   1995   
                                              --------               --------   

Net revenues                                   $48,312                $78,667  
Cost of revenues                                37,267                 80,090  
Provision for losses on purchase commitments         -                  7,839  
                                              --------               --------   
         Gross Profit (loss)                    11,045                 (9,262) 
                                                                               
Operating Expenses:                                                            
                                                                               
         Selling, general and administrative    11,328                 14,464  
         Research and development                5,100                  7,160  
                                              --------               --------   
         Total operating expenses               16,428                 21,624   
                                              --------               --------
         (Loss) from operations                 (5,383)               (30,886)

Net interest income (expense)                   (1,431)                    85
                                              --------               --------
(Loss) before income taxes                      (6,814)               (30,801)

Provision for income taxes                          -                   3,000
                                              --------               --------   
Net (loss)                                     ($6,814)              ($33,801)
                                              ========               ========
Net (loss) per share                            ($0.86)                ($2.98)
                                              ========               ========

Common and common equivalent shares
  used in computing per share amounts           14,673                 11,324
                                              ========               ========

           See notes to consolidated condensed financial statements

                                      -3-

<PAGE>
 
                           SYQUEST TECHNOLOGY, INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                (IN THOUSANDS)


                                                    December 31,   September 30,
                                                       1996            1996
                                                    -----------      ----------
                                                    (UNAUDITED)       (NOTE)
                       ASSETS
                       ------ 

Current assets:
 Cash and cash equivalents                           $  14,259       $   3,670
 Accounts receivable, net                               34,921          30,341
 Inventories , net                                      22,264          10,538
 Other current assets                                    3,135           2,471
                                                    -----------      ---------- 
   Total current assets                                 74,579          47,020
                                                    
Net property, equipment and leasehold improvements      26,476          27,180
Other assets                                               839             981
                                                    -----------      ----------
                                                     $ 101,894       $  75,181
                                                    ===========      ==========
 
     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
     ----------------------------------------------
 
Current liabilities:
 Bank borrowings                                     $  19,789       $  19,268
 Accounts payable                                       16,080          23,917
 Accrued expenses and other liabilities                 20,448          18,671
 Income taxes payable                                        -           1,966
 Current portion of long-term debt                      18,573          20,549
                                                    -----------      ----------
   Total current liabilities                            74,890          84,371
                                                    -----------      ----------

Other liabilities                                          160             192
Long-term debt                                          17,102          20,971
 
Stockholders' equity (deficit):
  Preferred stock                                            5              18
  Common stock                                              16              14
  Additional paid in capital                           149,500         102,580
  Treasury stock                                       (12,855)        (12,855)
  Retained (deficit)                                  (126,924)       (120,110)
                                                    -----------      ----------
    Total stockholders' equity (deficit)                 9,742         (30,353)

                                                    -----------      ----------
                                                     $ 101,894       $  75,181
                                                    ===========      ==========

 Note: The consolidated condensed balance sheet at September 30, 1996 has been
       derived from the audited financial statements at that date.

           See notes to consolidated condensed financial statements

                                      -4-
<PAGE>
 
                           SYQUEST TECHNOLOGY, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                  Three months ended December 31, 
OPERATING ACTIVITIES:                                               1996                  1995    
                                                                  ---------             --------   
<S>                                                               <C>                   <C>  
         Net (loss)                                                 ($6,814)            ($33,801)
 
         Adjustments to reconcile net (loss) to cash used in
         operating activities:
 
           Depreciation                                               1,680                2,343
           Deferred income taxes                                          -                3,000
           Provision for bad debts                                      257                1,601
           Other                                                          -                    2
                                                                                                
         Net changes in current assets and current liabilities:                                 
                                                                                                
           Accounts receivable                                       (4,837)              (9,470)
           Inventories                                              (11,726)              (1,805)
           Accounts payable                                           1,475               18,018
           Accrued expenses and other liabilities                       439                    -
           Other                                                       (696)               2,523
                                                                  ---------             --------   
         Net cash used in operating activities                      (20,222)             (17,589)
                                                                                                
                                                                                                
Investing activities:                                                                           
                                                                                                
         Purchase of equipment and leasehold improvements              (976)              (6,908)
         Other assets                                                   142                   37
                                                                  ---------              -------  
         Net cash used in investing activities                         (834)              (6,871)
                                                                                                
Financing activities:                                                                           
                                                                                                
         Proceeds from issuance of common stock                       8,531                    -
         Proceeds from issuance of preferred stock                   28,438                    -
         Net proceeds from bank borrowings                              521                6,013
         Repayments on long term debt                                (5,845)                    
                                                                  ---------             --------   
         Net cash provided by financing activities                   31,645                6,013
                                                                                                
Net increase (decrease) in cash and cash equivalents                 10,589              (18,447)
                                                                                                
Cash and cash equivalents at beginning of the period                  3,670               29,648 
                                                                  ---------             --------   
Cash and cash equivalents at end of the period                     $ 14,259              $11,201
                                                                  =========             ========   
</TABLE> 

                        Non-Cash Financing  Activities

During the period from October 18, 1996 to October 25, 1996, three suppliers
converted $9,231 thousand in notes payable to 1,504,349 shares of the Company's
common stock pursuant to agreements made by the Company with each supplier.

During December 1996, the Company accrued $81 thousand to additional paid in
capital, for the performance of professional marketing services. Consideration
for these services is to be met by the issuance of common stock purchase
warrants, entitling the buyer to purchase shares of unissued common stock of the
Company.

During December 1996, the Company paid $628 thousand of accrued preferred
dividends payable with 112,380 shares of the Company's common stock.


           See notes to consolidated condensed financial statements

                                      -5-
<PAGE>
 
                           SYQUEST TECHNOLOGY, INC.
             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                               DECEMBER 31, 1996
                                  (UNAUDITED)

NOTE: 1- BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included.

Operating results for the three month period ended  December 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1997.  For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on  Form 10-K, as amended, for the year ended September 30, 1996.

NOTE: 2- INVENTORIES
 
Inventories are comprised of the following:        December 31,    September 30,
                                                       1996            1996
                                                    ---------        --------
                                                          (In thousands)
 
          Raw materials                              $11,205         $ 5,005
          Work in process                              3,746           4,481
          Finished goods                               7,313           1,052
                                                     -------         -------
                                                     $22,264         $10,538
 

                                      -6-
<PAGE>
 
NOTE: 3 - NET LOSS PER SHARE

At December 31, 1996, the Company had 45,560 shares of convertible preferred
stock issued and outstanding, of which 40,060 shares are entitled to receive
dividends at the rates of 7% or 5%, with an assured incremental yield embedded
in the conversion terms. The computation of earnings per share for the quarter
ended December 31, 1996, includes two adjustments increasing the loss
attributable to common shareholders and which aggregate $6.0 million. A one-time
adjustment of $5.3 million is for the "imbedded yield" representing the discount
on the assumed potential conversion of the Cumulative Convertible Preferred
Stock, Series 1 and the 5% Cumulative Preferred Stock, Series 2, both of which
were issued during the quarter ended December 31, 1996. The second adjustment of
$0.6 million is for dividends payable on the Company's preferred stock issues
that require payment of cumulative dividends. The loss per share for the three
month period ended December 31,1996 is based on the weighted average number of
shares of common stock and common stock equivalents, when appropriate,
outstanding during the period.

NOTE: 4 - LINES OF CREDIT

On January 17, 1997, the Company renegotiated its line of credit with a
financial institution, continuing the existing terms and extending the line
through January 31, 1998. The new line provides for a limit on borrowings of the
lesser of $30 million or 80 percent of the Company's eligible accounts
receivable. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K, as amended, for the year ended September 30, 1996.

NOTE: 5 - REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company has raised significant financing during the quarter ended December
31, 1996.   See Part II, item 2 of this Form 10-Q.

NOTE: 6 - INCOME TAXES

No provision for income taxes has been recorded as the Company has incurred net
losses.  Deferred tax assets consisting primarily of the tax effects of net
operating loss carryforwards are fully reserved due to the uncertainty of their
realization based upon the weight of currently available information.

NOTE: 7 - LITIGATION
 
See Part II, item 1, of this Form 10-Q for a description of pending legal
proceedings.

                                      -7-
<PAGE>
 
                           SYQUEST TECHNOLOGY, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

The Company continues to face significant risks associated with market
acceptance of new products. The Company faces additional risks associated with
technology and product development, risks relating to new product introduction,
changes in the Company's marketplace, liquidity issues, and risks associated
with competition from other companies. The Company has experienced delays in
development of the SyJet product and anticipates a continued decline in selling
volumes and average selling prices of its other products. As a result, the
Company is in the process of reviewing its operations with the objective to
reduce its internal cost structure. However, there can be no assurance that the
Company will be successful in overcoming the delays in delivering the SyJet
product, competing against the product offerings of companies with greater cash
and operating resources, or in securing the resources to aggressively ramp
production of the SyJet. The Company requires additional cash resources in the
near future to fund working capital requirements, meet its debt obligations and
to fund incurred losses. Management's plans with respect to meeting these cash
needs include additional equity funding, expansion of the asset-based loan
facility and restructuring of notes payable. There can be no assurance that the
Company will be able to secure additional cash resources when needed, if at all,
or on favorable terms. An inability to overcome these risk factors would have a
material adverse affect on the Company's financial performance and on its
liquidity.

Net Revenues

Net revenues for the quarter ended December 31, 1996 were $48.3 million,
compared to $78.7 million reported for the comparable prior year quarter.
Revenue continued to be affected by lower volumes on the Company's mature drive
and cartridge products not offset by new product offerings. The decline in
revenue was partially mitigated by the continued production and sale of the
EZFlyer 230 drive and associated cartridge products. While the Company continues
its efforts to increase its manufacturing output for SyJet to meet the sales
demand, there can be no assurances that the Company will be successful in
manufacturing the required unit volumes or that the product will be accepted in
the marketplace.

                                      -8-
<PAGE>
 
Revenues to date for the Company's second fiscal quarter ending March 31, 1997
are significantly below the levels experienced in the prior quarter over the
same comparable time period.  The Company believes that this is attributable to
a number of factors including its inability to meet the demand for its new SyJet
1.5 Gigabyte removable hard drive product, due to unexpected delays in ramping
up production, and a reduction in sales of the Company's mature products.
Should the current sell through rate continue, the revenues for the second
fiscal quarter will be adversely affected.

Absent a substantial increase in sales of the Company's products prior to  the
end of the second fiscal quarter, the Company will incur losses in excess of
those incurred in the first fiscal quarter.  Lower than expected revenues have
resulted in a reduction in the availability of cash reserves and will
necessitate that the Company raise additional equity capital in the near future.
There can be no assurances that the Company will be able to raise the capital
required.  Additionally, factors such as the sell through rate in the channel,
price pressures on the Company's products, and the inability to ramp SyJet
production will have an adverse impact on revenues.

The Company is in the process of performing an extensive review of its operating
cost structure and will implement spending levels consistent with revenue
expectations.

Gross Profit (Loss)

The Company recorded a gross profit for the quarter ended December 31, 1996 of
$11.0 million, or 23 percent of net revenues, compared to a gross loss of $9.2
million, or 12 percent of net revenues, in the comparable prior year quarter.
The increase in margins is principally attributable to the realization of
significant production economies including reductions in scrap and rework. These
efficiencies have generated excess capacity.

Comparatively, prior year quarter margins were negatively affected by a $7.8
million provision recorded by the Company related to certain firm purchase
commitments to its component suppliers.

Factors such as volatility in the drive and cartridge markets, unexpected
production delays and costs, and an inability to meet production schedules and
sales demand could have an adverse effect on margins. 

                                      -9-
<PAGE>
 
Consequently, there can be no assurances that the Company will achieve necessary
improvements in margins in the future.

Selling, General and Administrative Expenses

Selling, general and administrative expenses aggregated $11.3 million, or 23.5
percent of net revenues compared to $14.4 million, or 18.4 percent of net
revenues, for the comparable prior year quarter. The decrease in aggregate
spending of 21.5 percent over the comparable prior year quarter is primarily
attributable to the Company's ongoing attempts to control costs. There can be no
assurance that the Company can continue to decrease aggregate selling, general
and administrative expenses. Additionally, during the quarter, the Company
incurred professional fees related to potential merger and litigation 
activities.

Research and Development Expenses

Research and development expenses for the quarter ended December 31, 1996
aggregated $5.1 million, or 10.6 percent of net revenues, compared to $7.1
million, or 9.1 percent of net revenues, for the comparable prior year quarter.
The 28.2 percent decrease in research and development spending is principally
the result of the Company's ongoing strategic initiative to minimize expense
levels and focus engineering efforts on its primary core products. The Company
believes that it must continue to make significant investments in R&D in order
to effectively implement its product strategy and will continue to make these
investments commensurate with its revised operating cost structures.

Interest Income and Expenses

Net interest expense aggregated $1.4 million for the quarter ended December 31,
1996 compared to net interest income of $0.1 million for the comparable prior
year quarter.  The increase in interest expense is principally the result of
lower average cash balances coupled with interest incurred on the Company's
borrowing.

Net Loss

Net Loss for the period was $6.8 million compared to $33.8 million for the
comparable prior year period.  The change over the prior period is primarily
attributable to discontinuing production of mature products with negative gross 
margins, combined with improvements from production efficiencies.

LIQUIDITY AND CAPITAL RESOURCES:

The Company is in a turnaround situation which necessitates certain actions on
behalf of the Company which affects the business 

                                      -10-
<PAGE>
 
environment in which the Company operates. Through much of fiscal 1996, the
Company was unable to obtain regular business terms with its suppliers as a
result of continued losses and liquidity issues. Consequently, the Company was
often in a position of conducting business with its suppliers on a C.O.D. basis.
During the second fiscal quarter to date, the Company has begun to experience a
return to regular business terms with key suppliers. In addition to the $9.2
million of supplier notes converted to equity in the first fiscal quarter of
1997 and the $2.3 million converted in the in the fourth quarter of fiscal 1996,
the Company intends to aggressively pursue a program to convert the remaining
supplier notes to equity. There can be no assurance that the Company will be
successful in its attempts to convert the existing notes which could have an
adverse affect on the Company's liquidity. Additionally, liquidity has been
affected by servicing debt, funding of operational losses, and SyJet development
costs. The Company intends, to raise additional capital to fund operations,
resize its operations and cost structures commensurate with revenue
expectations, and increase available lines of credit. However, there can be no
assurances that the Company will be successful in achieving these objectives.

At December 31, 1996 the Company had cash and short-term investments of $14.3
million, an increase of $10.6 million compared to $3.7 million at September 30,
1996.  Borrowings under the Company's credit facilities amounted to $19.8
million at December 31, 1996 compared to $19.3 million at September 30, 1996.
Additionally, the Company increased its net worth from a deficit position of
$30.4 million at September 30, 1996 to an equity position of $9.7 million at
December 31, 1996.  Working capital also increased from a negative position of
$37.4 million at September 30, 1996 to a negative position of $.3 million at
December 31, 1996.  The increase in net worth and working capital is primarily
attributable to a significant increase in equity investments coupled with a
reduction in operating losses.

The Company may experience other effects in the future such as higher interest
rates, inability to borrow without collateral and higher financing costs with
regard to capital.

The Company has financed its working capital needs through a combination of
existing cash resources, asset-based borrowings, and a series of capital
financing transactions completed during calendar 1996.

Accounts receivable aggregated $34.9 million at December 31, 1996 compared to
$30.3 million at September 30, 1996, an increase of $4.6 million or 15.1
percent. The increase in accounts receivable is primarily due to an increased in
the aging as a result of slower collections.  The 

                                      -11-
<PAGE>
 
Company has instituted an aggressive collections program. Inventories, net
of reserves, aggregated $22.3 million at December 31, 1996, an increase of $11.8
million, compared to the $10.5 million at September 30, 1996. The increase in
inventories is primarily attributable to production of the EZFlyer 230 and work
in process on the SyJet products.

On January 17, 1997, the Company renegotiated its line of credit with a
financial institution, continuing the existing terms and extending the line
through January 31, 1998.  However, the new line provides for a limit on
borrowings of the lessor of $30 million or 80 percent of the Company's eligible
accounts receivable.  For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on  Form 10-K, as amended, for the year ended September 30, 1996.

The Company has raised significant financing during the quarter ended December
31, 1996. See Part II, item 2 of this Form 10-Q. The Company's current strategy
will necessitate additional equity which if successful will cause further
dilution of existing Stockholders.

The Company has deferred further negotiation of an equity investment with the
Legend group as further documented in the Company's annual report on Form 10-K,
as amended, for the year ended September 30, 1996.

During the quarter ended December 31, 1996, the Company used $20.2 million in
cash for operating activities and $1.0 million in capital expenditures.

The Company believes that, based on a number of events occurring, the current
sources of financing available to the Company will be sufficient to fund the
Company's operations into the near future. There can be no assurance, however,
that additional financing will be available when needed, if at all, or on
favorable terms. The Company is in the process of performing an extensive review
of its operating cost structure and will implement spending levels consistent
with revenue expectations.

NOTICE CONCERNING FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE
RESULTS, FINANCIAL CONDITION AND LIQUIDITY:

Some of the statements made in this Form 10-Q are forward-looking in nature,
including but not limited to the Company's product introduction and financing
plans and other statements that are not historical facts. Forward-looking
statements in this

                                      -12-
<PAGE>
 
Form 10-Q include without limitation language in the form of one or more of the
following words: "intend", "believe", "will", "may", "anticipate", "plan" and
"expect." The occurrence of the events described, and the achievement of the
intended results, are subject to the future occurrence of many events, some or
all of which are not predictable or within the Company's control; therefore,
actual results may differ materially from those anticipated in any forward-
looking statements. Many risks and uncertainties which could affect the possible
results described in forward-looking statements are inherent in the Company's
industry; others are more specific to the Company's business. Risks related to
the Company's business are described in the Company's Form 10-K, as amended,
including risks associated with technology and product development, risks
relating to new product introduction and acceptance of new products, changes in
the Company's marketplace, preferred stock issuances and dilution, intellectual
property matters, regulatory and manufacturing issues, liquidity issues, and
risks associated with competition from other companies, as well as the
following:

ONGOING RISK ISSUES

Market acceptability of the Company's product continues to be paramount in
ensuring a successful turnaround strategy.  The Company's product is subject to
increasing competition from several other removable-media data storage devices.
Consequently, in order to secure adequate market share, the Company must ensure
that the functionality and quality of the product is effectively communicated to
the marketplace. As a result, the Company needs sufficient capital to implement
a marketing strategy that will adequately address the appropriate markets. The
Company is also dependent on the successful production and sale of the SyJet
product line. Additionally, the decline in volumes and pricing on mature
products will have an impact on the Company. The Company must also continue
implementing an operating cost structure that will ensure spending levels
consistent with revenue expectations. Critical to each of these factors is the
Company's ability to attract additional investment capital. There can be no
assurances that the Company will successfully achieve these objectives.



FUTURE PROFITABILITY

Although the Company continues to execute its turnaround plan, adjusting
operations to reduce losses and rebuild the business, the Company does not
expect to return to profitability in the near future.  Although the Company
believes it will ultimately be successful in its turnaround attempts, and that
the Company will return to profitability in the future, there can be no
assurances that 

                                      -13-
<PAGE>
 
the Company will be successful or that it will have, or be capable of obtaining,
sufficient capital to withstand prolonged operating losses.

SHORTAGES OF CRITICAL COMPONENTS; ABSENCE OF SUPPLY CONTRACTS; SUPPLIER WORKOUTS

Many components incorporated in, or used in the manufacture of, the Company's
products are currently only available from sole source suppliers. During the
1996 fiscal year, the Company experienced disruption in its supply of certain
components for a number of reasons including the shortage of cash to pay
suppliers. The Company continues to experience component shortages due to
limited cash availability which affected the Company's ability to produce
its products and limited the Company's ability to implement certain cost
reduction and productivity improvement plans. Moreover, the Company may continue
to experience difficulty in the future in obtaining a sufficient supply of many
key components due to the shortage of cash to pay suppliers and other reasons. A
disruption in the supply of key components would have a material adverse affect
on the Company's ability to generate sales and the ability to successfully
launch the SyJet products.

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

The Company has experienced and in the future may continue to experience
significant fluctuations in its quarterly operating results. Factors such as
price reductions, the introduction and market acceptance of new products,
product returns, the availability of critical components and the lower gross
margins associated with the Company's newly introduced products could contribute
to this quarterly fluctuation. Moreover, the Company's expense levels are based
in part on expectations of future sales levels, and a shortfall in expected
sales could therefore result in a disproportionate decrease in the Company's
results of operations. As a result of these and other factors, including
possible further dilution, it is likely that the Company's operating may be
affected.

                                      -14-
<PAGE>
 
                                    PART II
                               OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
 
The Company has been named as a defendant in four putative class action
lawsuits. Two of the actions, Ravens, et al. v. Iftikar, et al. (filed April 2,
                              ---------------------------------                
1996) and Bellezza, et al. v. Iftikar, et al. (filed May 24, been brought in the
          -----------------------------------                                   
United States District Court for the Northern District of California and have
been assigned to the Honorable Vaughn Walker (collectively, the "Federal
Lawsuit"). Certain current and former officers and directors also have been
named as defendants in the Federal Lawsuit. Plaintiffs have petitioned the Court
to consolidate the foregoing complaints into one consolidated action. That
request, as well as other procedural matters which arose during a July 18, 1996,
case management conference, is under consideration. The plaintiffs in the
Federal Lawsuit purport to represent a class of all persons who purchased the
Company's Common Stock between October 21, 1994 and February 1, 1996. The
Federal Lawsuit alleges that the defendants violated the federal securities laws
through material misrepresentations and omissions. The third suit is a purported
class action entitled Gary S. Kaufman v. SyQuest Technology Inc., et al. was 
                      --------------------------------------------------
filed on March 25, 1996, in the Superior Court of the State of California for
the County of Alameda (the "Kaufman Lawsuit"). Certain current and former
executive officers and directors of the Company are also named as defendants in
the Kaufman Lawsuit. The plaintiffs in the Kaufman Lawsuit purport to represent
a class of all persons who purchased the Company's Common Stock between May 2,
1995, and February 2, 1996. The Kaufman Lawsuit alleges that defendants violated
various California laws through material misrepresentations and omissions.
Unspecified damages are sought. The fourth purported class action entitled 
Ravens, et al. v. Iftikar, et al., was filed on October 11, 1996 in the Superior
---------------------------------              
Court of the State of California for the County of Alameda (the "Ravens
Lawsuit"). The Ravens Lawsuit alleges that the Company and certain of its former
officers and directors violated various California laws through material
representations and omissions between October 21, 1994 and February 2, 1996, and
is purportedly brought on behalf of persons who purchased stock during that
period. Unspecified damages are sought. The Ravens Lawsuit has been consolidated
with the Kaufman Lawsuit. Plaintiffs are preparing a consolidated complaint. The
Company intends to defend the cases vigorously.

The Company has certain insurance coverage with respect to the above claims,
however, the amount of any ultimate claims on these actions and related
insurance coverage is not presently determinable.

                                      -15-
<PAGE>
 
On May 14, 1996, the Company was served with a shareholder's derivative action
filed in Alameda County, California, Superior Court entitled John Nitti, et al.
                                                             ------------------
v. Syed Iftikar, et al. On July 22, 1996, plaintiffs filed an amended complaint.
-----------------------                                               
The action seeks to recover unspecified damages and punitive damages on behalf
of the Company from current and former officers and directors of the Company for
alleged breach of fiduciary duty, unjust enrichment and waste of corporate
assets. The Company is a nominal defendant in the action. The complaint alleges
that the officers and directors issued false and misleading information and sold
shares of the Company's stock at artificially inflated prices. The allegations
are essentially the same as those in the putative class actions. The Company
intends to defend this case vigorously.

The Company has filed suit against Nomai, S.A. (Nomai) and Maxell in France for
copyright and patent infringement, and though it did not obtain the temporary
injunction sought against Nomai prohibiting the sale and distribution of Nomai's
200 megabyte cartridges, the underlying suit continues. The Company has also
initiated an arbitration proceeding against Nomai seeking payment of outstanding
royalties of approximately $1 million. The arbitration process began in May
1995, in San Jose, California.

On January 27, 1997, the Company has filed a suit against Nomai, S.A.,
Electronique d2 and La Cie Ltd. In Federal district court in San Francisco for
patent, trademark and copyright infringement, unfair competition and breach of
contract. The suit alleges that Nomai and others have illegally used the
Company's proprietary technology in certain of Nomai's competing products. The
suit seeks to block further sales of such products along with damages deriving
from harm done to the Company by this conduct.

A third party has notified the Company that it believes the Company infringes on
six U.S. patents. It is the Company's belief that the claims are without merit
or that the infringement claims related to component parts purchased from
vendors. The Company also believes that in the event the third party prevails on
its claims, the Company will be indemnified by its vendor for any liability
arising from the alleged infringements and that this matter will not have a
material adverse effect upon its financial condition or results of operations.

From time to time, the Company is involved in litigation that it considers to be
in the normal course of its business. Other than set forth above, the Company is
not engaged in any legal proceedings as of the date hereof which the Company
expects individually or in the aggregate to have a 

                                      -16-
<PAGE>
 
material adverse effect on the Company's financial condition or results of
operations.

ITEM 2.  CHANGES IN SECURITIES; POTENTIAL DILUTION AND ADVERSE IMPACT ON
         ADDITIONAL FINANCING

From September 27, 1996, through October 30,1996, the Company issued to four of
its suppliers 1,874,837 shares of the Company's Common Stock in exchange for
approximately $11.6 million of its trade debt, pursuant to Regulation D under
the Securities Act of 1933, as amended (the "1933 Act"). Each of those suppliers
warranted that it is an accredited investor and received registration rights, as
described in the Company's Current Report on Form 8-K, as amended, dated October
31, 1996, which is incorporated herein by this reference (the "October 8-K").

On October 8, 1996, in reliance on Regulation D under the 1933 Act, the Company
issued to certain accredited investors 5,500 shares of its Convertible Preferred
Stock. Series 1, $0.001 par value per share (the "Convertible Preferred Stock"),
for an aggregate purchase price of $5,500,000, and granted to those investors
certain stock purchase warrants to acquire up to 550,000 shares of Common Stock
for $5.50 per share. The Convertible Preferred Stock is convertible into Common
Stock and additional warrants as described in the October 8-K.

On October 8, 1996, in reliance on Regulation D under the 1933 Act, the Company
issued to certain accredited investors 24,500 shares of its 5% Cumulative
Preferred Stock, Series 2, $0.001 par value per share (the "Series 2 Preferred
Stock"), for an aggregate purchase price of $24,500,000. The Series 2 Preferred
Stock is convertible into Common Stock and Warrants as described in the October
8-K.

In conjunction with the issuance of the Convertible Preferred Stock and the
Series 2 Preferred Stock, the Company issued to certain accredited investors, as
part of their compensation for their facilitation of those transactions, certain
stock purchase warrants to acquire up to 50,000 shares of Common Stock for
$10.875 per share and up to 75,000 shares of Common Stock for $7.15 per share.

On November 13, 1996, in reliance on Regulation S under the 1933 Act, the
Company issued to a non-U.S. company 1,500,000 shares of Common Stock that
became freely tradeable, subject to compliance with applicable securities laws,
on approximately February 12, 1997, for an aggregate purchase price of
$8,531,250. As part of this transaction, the Company also issued a warrant that
will become exercisable for between 375,000 shares 

                                      -17-
<PAGE>
 
and 1,875,000 shares of Common Stock, depending on a number of factors described
in the Company's Current Report on Form 8-K dated November 11, 1996, which is
incorporated herein by this reference.

As of December 16, 1996, the Company agreed to issue a total of four warrants to
acquire an aggregate of 320,000 shares of Common Stock to a consultant, Bain &
Company, Inc. ("Bain"), in exchange for consulting services to be performed by
Bain between December 16, 1996 and approximately April 16, 1997. Subject to
certain conditions, a stock purchase warrant to acquire 80,000 shares of Common
Stock has been or will be issued to Bain on each January 16, February 16, March
16, and April 16, 1997. The stock purchase warrants are exercisable for four
years from the date of grant at an exercise price per share of Common Stock
equal to the greater of (a) the arithmetic average of the closing sale price per
share, or in the absence of a closing sale price on any day, the closing bid
price per share on that day, of the Common Stock, as reported by the Nasdaq
National Market for the five consecutive trading days preceding the grant date
with respect to such warrant, and (b) the closing sale price per share, or in
the absence of a closing sale price, the closing bid price per share, of the
Common Stock, as so reported for the trading day preceding such grant date,
minus $0.10. The terms of these warrants and certain registration rights granted
to Bain in connection therewith, are more fully described in the Warrant
Purchase Agreement and Exhibits between the Company and Bain dated as of
December 16, 1996, which are attached hereto.

As of January 3, 1997, the Company had obligations to issue additional warrants
for approximately 23,426,247 shares of Common Stock, in aggregate for certain
outstanding warrants and options. While the number of shares of Common Stock
issuable under certain of the Company's obligations is fixed, the exact number
of shares of Common Stock issuable upon conversion of Preferred Stock and
exercise of warrants issued pursuant to such conversion cannot be estimated with
certainty. Generally, such issuances of Common Stock will vary inversely with
the market price of the Common Stock at the time of such conversion, and there
is no cap on the number of shares of Common Stock that may be issuable. The
number of warrants and shares of Common Stock issuable upon conversion of the
Preferred Stock is also subject to various adjustments to prevent dilution
resulting from stock splits, stock dividends or similar transactions. Further,
the Company may, at its election, choose to issue additional shares of Common
Stock in lieu of cash dividends due to the holders of the 7% Cumulative
Preferred Stock and the Series 2 Preferred Stock.

To the extent that such options and warrants are exercised, shares of Common
Stock are issued in lieu of cash dividends or convertible securities are
converted (and the warrants issuable upon such conversion are 

                                      -18-
<PAGE>
 
exercised), substantial dilution of the interests of the Company's stockholders
is likely to result and the market price of the Common Stock may be materially
adversely affected. Such dilution will be greater if the future market price of
the Common Stock decreases. For the life of such warrants, options and
convertible securities, the holders will have the opportunity to profit from a
rise in the price of the underlying securities. The existence of such warrants,
options and convertible securities is likely to affect materially and adversely
the terms on which the Company can obtain additional financing, and the holders
of such warrants, options and convertible securities can be expected to exercise
them at a time when the Company would otherwise, in all likelihood, be able to
obtain additional capital by an offering of its unissued capital stock on terms
more favorable to the Company than those provided by such warrants, options and
convertible securities.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
         a. Exhibit 11.1 Computation of Earnings per share

         b. Exhibit 27.1 Financial data schedule

         c. Reports on Form 8-K
 
            A current report on Form 8-K, dated December 30, 1996, was filed by 
            the Company reporting under item 5 the filing of a press release 
            stating the Company's earnings in the fourth quarter of fiscal 1996.

            A  current report on Form 8-K, dated December 2, 1996, was filed by 
            the Company reporting under item 5 the filing of a Registration 
            Statement on Form S-3.

            A current report on Form 8-K, dated November 5, 1996, was filed by 
            the Company reporting under item 5 the Company's discontinuation of 
            plans to acquire a controlling interest in Normai S.A.

            A current report on Form 8-K, dated November 11, 1996, was filed by 
            the Company reporting under item 5 the continuation of the Company's
            NASDAQ National Market listing and the execution of a Letter of 
            Intent to acquire a controlling interest in Normai, and under item 9
            the sale by the Company of equity securities pursuant to Regulation 
            S.

            A current report on Form 8-K, dated November 31, 1996, and an
            amendment thereto were filed by the Company reporting under item 5
            the results of the Company's Special Meeting of Stockholders held
            September 26, 1996, the Company's filing with Nasdaq of a proforma
            balance sheet evidencing the Nasdaq National Market, and the
            Company's exchange of debt for equity with certain vendors, sale of
            Convertible Preferred Stock, Series 1 and sale of 5% Cumulative
            Convertible Preferred Stock, Series 2 and related warrants.

                                      -19-
<PAGE>
 
                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                            SYQUEST TECHNOLOGY, INC.
                                  (Registrant)



Date: February 14, 1997            By: /s/ Henry C. Montgomery
      -----------------                -----------------------

                                             Henry C. Montgomery
                                             Executive Vice President,
                                             Finance & Chief Financial 
                                             Officer

                                      -20-
<PAGE>
 
                                 EXHIBIT INDEX

                                                         Sequentially
EXHIBIT                                                  Numbered Page
-------                                                  -------------

Exhibit  3.1  -     Bylaws of SyQuest Delaware, Inc.

Exhibit  4.1  -     Warrant Purchase Agreement

Exhibit 11.1  -     Computation of Earnings
                      per share                                

Exhibit 27.1  -     Financial data schedule                    

                                      -21-